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all right good morning everybody welcome all of you to jeffrey's 2026 industrial conference my name is stephanie moore jeffries transportation logistics analyst we're very pleased to have the team from gxo today we have ceo patrick kelleher and chief strategy officer christine kabaki thank you guys both for being here thank you for having us format is just simple fireside chat i'll kick it off with a bunch of questions and we can go from there maybe starting with some maybe kind of near-term focus just because um you know we did come off of the second quarter results and i do think you know i certainly have received a lot of questions on just the organic growth performance on the quarter so um you Know on the specifics 2q organic growth of 3.4 moderated slightly from the first quarter we got a lot Of questions around that um you know but i do Think that on two-year stack it actually accelerated but there's a lot of nuances there. So maybe just starting with that, can you just talk through maybe some of the nuances, one cue to two cue, how we should think about the timing of contract startups and maybe what drove any kind of deceleration? Sure. So I joined GXO one year ago. Prior to joining, GXOs have been on a decelerating path of organic growth. We were mid-teens organic growth when we spun out of XPO in 2021, forecasting 45% organic growth this year. It's been a lot of work and effort in the last year to reinvigorate organic growth in the business. I think that evidenced by our Q2 new business signings at $412 million, which I believe is about a 35% increase over prior year. I signaled on the call in August that the third quarter would look similar in terms of new contract signings in comparison to last year on a percentage basis. And so we feel good about the trajectory that we're on from an organic growth perspective and reinvigorating that agenda. In Q2, we saw the 3.4% organic growth. It takes about three to six months to start up a new contract in the contract logistics business. The difference between 3.4% and 4%, which I think everybody was expecting, is $17 million. That represents about a two-week slip in startup timing, nothing that I was concerned about, and I was quite frankly surprised how concerned everybody else was. But we reaffirmed we're on path this year for the achievement of our 4% to 5% organic growth guidance, and that still holds. And we will share our organic growth trajectory in our Investor Day, November 16th. Stephanie, I would just add also is that our incremental revenue for this year at the end of the quarter came up to over a billion dollars, and that was a record for us, and it was up about 29% year on year. So I think as we look ahead, we already have the visibility secured in that incremental revenue in the second half of this year. I think that's really helpful. I mean, we get at the question quite a bit is just, is there any change in underlying customer demand, but maybe emphasize what you're seeing there, but also just, I think the visibility that you do have, that gives you the confidence in the second half outlook. Yeah, so in terms of customer demand, and we talked about this August 5th, current customer volumes in the aggregate have been relatively flat, plus minus one or two, plus or minus one percent, really. We've seen softer volumes on the e-commerce retail side in Europe, but substantially higher volumes on our B2B industry verticals of aerospace and defense, technology, industrial, and life sciences. Those all really netting out to pretty stable volume and revenue for us. We've talked about marginal improvement in pricing, because we are in the era of pricing improvement, and the balance of the organic growth is really coming from retention of existing business, not losing business, and adding new business and new contracts. Maybe just starting on that sales pipeline and a lot of the work that you've put in over the last year. So I think you called out that the sales pipeline is at a record $2.7 billion. You know, what's driving this pipeline growth? Just blanket statement there. Yeah, it is the strategic focus that we put on North America and the strategic B2B verticals. I've talked about really leaning more into the capabilities, competencies that we have in aerospace defense, life sciences, technology, and artificial verticals as something I feel like we have not done in the past at GXO. 70% of our business today is consumer, CPG, retail, e-commerce, business. 40% of part of the business wins so far this year have been North America. Less than 30% of revenue is in North America, so I think that strategy is coming to life. 41% or 2% of new business wins have been in the B2B verticals. We talked about where we're putting additional emphasis. I shared in the investor call on August that I'm particularly excited about the progress we're making there because we really haven't gotten started yet. Fairmonger has come on as Chief Commercial Officer in January. We are standing up a digital marketing capability that did not exist in the past that will be a huge catalyst to building additional pipeline for us. we are adding to our sales teams particularly on the B&B verticals and those people are just coming in coming up to speed so I really feel like the teams and our people have done a phenomenal job turning focus to here is to present the greatest growth opportunity delivering and converting against that and we see additional coming with the investments that we make on the growth I definitely want to touch on some of those investments in a little bit because I think there's a lot there and a lot of opportunity. But on that $2.7 billion pipeline, can you help us think about how we should think about conversion of that pipeline over the next 12 months? Yeah, we flag approximately a 28% conversion rate. I don't know, ish, 28-ish conversion rate on that pipeline rolling. The pipeline turns about one and a half times a year, so that does not the total volume of business we will chase in a year. And I think very exciting was we signed $412 million of new business in the second quarter. The pipeline at the end of the quarter dropped to $2.3, $2,2.4, $3.3 billion. It sprung back to $3,2,4, and sprung to $1,240,000. It sprang back to 2.7 before the investor fall. So there continues to be great marketplace opportunity out there. And it's really about demonstrating great pipeline and certainly choosing the right opportunities to go after. I guess maybe thinking about the building blocks to your organic growth opportunity and to your point that the four to five percent expected for the full year so you've already based on my math is it locked in is it nine percent for this year in terms of new wins so then after that it really you're kind of talking through the volume the pricing then the other piece is certainly churn or attrition. I think that's been really steady over time. Is there a potential change where over the long term that churn or attrition rate could look different than what it has over the last couple of years? Yeah, we have an opportunity to improve there. So we're 95% churn rate today. We have an opportunity to be higher there. We've taken a couple steps towards that. We invented a global customer success model, which is a global account management model. I'm going to the organization, we need that. That is very focused both on customer retention and also growing with our largest customers around the world. So between the two, we think that's going to be a big issue to organic growth by compressing, improving retention and beyond the 95% and driving additional sales. Maybe getting into some of the actions over the last year. In the second quarter, you did announce what I think with a record deal for the quarter, but it was with a large hyperscaler, which obviously gets us all very excited. And maybe a customer that we didn't historically think would be in the GXO wheelhouse. So first, can you just talk a little bit about what you are doing for that customer and then help us understand the life cycle of how data centers or hypers scalers can ultimately be as customers for GXL? Sure. We're doing business with multiple hypersalers. across the regions that we operate in so not only in north america but also in europe i think everybody's excited about the build out of data centers there's lots of activity going on there we participate from a supply chain perspective in supporting the build out we have individuals who work in our warehouses who build the racks who do the wiring who deliver a completed rack to the data center that just has to be plugged in by our customer to to start working that is far more efficient than doing that work in the data center you've been in the data it's quite cramped it's not easy to work in the data so we brought a lot of efficiency to that process but what i'm even more excited about is we provide all of the maintenance and sustaining parts to the data centers and that is where we see longevity and the solutions that we're providing We can all anticipate that there will be some sort of peak in terms of data center build-out. We want to participate there, but I'm more excited about the services that we're providing around maintenance and sustainment. So if the server goes down, the part goes down with fan breaks and so forth, we're provide those parts to the technician for the repair. We're handling the returns of that product coming out, and that has lots of longevity. and then just to follow up how are these contracts maybe different or in line with your company average in terms of tenure of the contracts contract structure, anything there that would be helpful I think they're pretty similar those solutions in contrast to some that we implement are lower capex solutions, they are in line with the average contract length that we have right now which is 5 years the margins on that is good and creative to affect margins so that they are great contributors to our growth. So touching on maybe some of the commercial success that you've seen thus far and especially calling out those key end verticals, I think there's a lot to unpack there because, to your point, you're only one year in, and a lot of the team's not exactly probably ramping up at full capacity either. They've never been. That's good. What do you think has driven the initial success in some of these key verticals? Because there's probably a lot of factors at play. I mean, you have Wincanton, which certainly was a bit more industrial-focused or defensive-focused. You have your own personal background. So maybe if you could bifurcate what's driven this initial success and then what kind of success we should expect maybe over the next couple years. Sure. I think sort of reflecting on my first year, I've had the question of what did I see at GXO? I arrived there's been a lot of focus over the last five years before I arrived on M&A. I think that M&As contributed to competencies that we have on the B2B verticals especially but I don't think the GXO organization did a good enough job of leveraging those capabilities for organic growth. There was a lot of focus on driving synergies out of acquisition and looking for the next So when I arrived, I went around 70 different warehouses in 12, 13 countries, and the capabilities that I saw 32 years in the industry were phenomenal. I visited one of our aerospace defense operations in Atlanta, where we support both commercial and defense activity for a large aerospace customer, and it is second to none in terms of our capability. And frankly, I was a little stunned that there hadn't been more effort put into growing that. So I think some of the success that we're seeing there is simply coming from focus, getting the message out to key customers around the capabilities that we have there, and winning. We have great people operating in these businesses, lots of credibility with customers, so it's getting them in front of customers. And then we've taken additional steps, such as in the U.S., we established the Defense Advisory Board, and we've got a half-dozen folks who are retired, very senior military, with strong supply chain acumen, helping us formulate the right services and approaching the right people in the industry to win. And that's been a big catalyst. We formed the Taurus Consortium in the UK. Our sales manager, Scott, is a center pursuing large opportunities with the UK government, the UK military. And that is really a specific pipeline coming from that. So we're bringing in experts and really being open-minded and listening to what customers need, what are the issues in the industry, making sure that we're solving their own problems. And that gives the best opportunity to solve those solutions. On the hyperscale side, we had the opportunity to start very small with one, and we built phenomenal capability there, and that really has exploded for us. The people that we have, the expertise that we had, our ability to move quickly, which is absolutely paramount there, has made a real difference. And so it really has not been any sort of transformation or reinvention of anything. It has been about focus, unleashing people to focus on organic growth, leveraging the great expertise that we have within the organization to get that customer facing. Thank you. Okay, so one follow-up on this. We've obviously touched a lot about some of these high growth, maybe higher value add verticals and you called out a lot of them you know aerospace and defense having a key one here but there is still the you know maybe the core e-commerce side of things or the core retail core consumer so two-part question what are you saying from the general overall health of that you know i think you called that the consumer e-commerce bucket of your portfolio and at the same time you know does growth in one area maybe come at the expense of the other Yeah, I don't think it has to come at the expense of the other, and I also see that when we think about geographies, and we'll come back to that. We're still seeing the steady growth that we expect from e-commerce and CPG industries, and we expect that to continue. We'll outline that more specifically on November 16th on Investor Day. When you think about 40% of our new business this year has been in the B2B vertical, 60% has been e-commerce and CPG-facing businesses, so that business continues to run very healthy. We're seeing larger, more complex projects come on the e-commerce front, a lot more automation, a lot of robotics and expectation of AI in the operations, and that continues to evolve quickly, maybe even more so than on the B2B side, and I think we're really advantaged there with the investments we've made and the expertise that we have in automation. Stephanie, I would just add in the second quarter by just a hair, our second largest win was an e-commerce win in continental Europe. And to all the things that Patrick's been talking about, the complexity with tariffs, with trade, that's just lending our solutions to help our customers. So that's not going away and that's only increasing. I think one area that we've talked about for years is that the demand for gxo services you really do come in as kind of an essential partner and it doesn't really matter what the the problem is at the time whether it's tariffs or labor or you know covet i mean there's always you know there's always a struggle from a supply chain standpoint it seems like um do you think that the success going forward is just making sure all that you can provide is just simply known by customers or potential customers is it as simple as that i i think it is um i think our success has to be built on a foundation of excellent service to our customers and their customers that that is where i am most passionate we want to and strive to continue to be a great place to work we want create amazing associate experiences so it really is a combination of having great people recruiting retaining developing and retiring the very best people in industry I would say and those people providing excellent service to customers allows us to grow the core business and we have the opportunity then to move into different services for customers so it's not uncommon that we'll start a warehousing operation for a customer and we'll introduce a packaging operation within the warehouse for that customer through consumer packaging and creating multi-packs and so forth for customers on the b2b side moving indicating sub-assembly and so forth those are avenues that we can grow in and so for us we've got the opportunity to increase share a wallet with current customers as well as bringing customers in with these services but as you said it is about getting the message out customers understanding what it is that we can do for them the value proposition that we bring which is a great value proposition is evidenced by the new business that we're signing. I think our digital marketing capability that we're standing up is going to be a part of getting that word out in a much bigger way than what we do today. So we can expect more pipeline coming from that. And then it is about making sure that we are implementing what we win successfully and providing that great service. Maybe jumping to margin improvement, operating execution, which I think is a whole section of questions that I don't think I would have ever asked the GXO team up until you getting here. So this is, I think, an exciting area that I think investors understand, but maybe are looking to see what the future can hold in this area. So Patrick, when you first joined, Ithink one of your first initiatives was to transition away from a regional operating model to a more kind of globalized platform. Maybe just talk to us about that process in the last year, and we can start there. And certainly we have other follow-ups to that, but let's start there, yeah, when it When it comes to margin performance, free cash flow conversion, organic growth, since I joined, especially after my first 70 warehouse site visits, I've been very vocal. GXO is underperforming from a margin perspective, particularly when you compare us to our peers. We're 3.5% of the business. Our good peers are 6% or better. I joined with less than 30% free cash flow conversion. Our best peers in the industry are 50% or better. Our organic growth, we flag our peers there. We have to be better. I've been very vocal about that internally. I talked about that in my first town hall. That's the one thing I didn't like when I arrived, but I knew what I was stepping into. And that is an area where we have to be even more even better. so to close the gap on those margins and to be a true market leader not only from a supply chain execution perspective but from a financial performance perspective our approach is multiple one is and you referenced we are a 13 billion organization which up until a year ago has been managed in a very regional silo basis while we integrated acquisitions some of those even entities managed on their own we are shifting to a one gxo leveraging the global scale of the business when i arrived i used the example there was no global procurement function you can imagine if you have ever met a sophisticated procurement person who could look at a 13 billion enterprise they would find significant savings opportunities engaging strategic suppliers on a global basis rather than regional basis so that is in motion leveraging our global scale presents a great opportunity for sharing best practice across our 1200 operations which we have not done I think effectively enough in the past we have our operational excellence agenda which is about improving productivity cost out sharing value with customers to capture more of the value for ourselves than what we have in the to improve the margin performance of the contracts that we have with customers that is all about investing in robotics automation ai labor management systems in order to improve productivity reduce cost and then on the other side is making sure that the new business that we're bringing on is accreted to the margins that we deliver today so pursuing those more strategic b2b sectors that are more complex solutions come with higher risk of execution and therefore are rewarded with higher margins that is part of the strategy to improve margins focus on north america where we have been underway to our competitors in growing north americans north americas our smallest region less than 30 of our revenue that should not be we're putting a lot of focus on growing north America which is structurally a higher margin market and then we look at the the TAM that's available to us we're very small in asia less than one percent of our revenue we're in thailand singapore malaysia executing very well but there's a huge huge opportunity for us to grow asia we're really going to step into that in 2027 and asia is a very healthy margin region and so this combination of actions to close the gap on the margin improve margin performance we're passionately going up on the free cash flow side We're guiding this year at 30-40%, up from the less than 30% in the past. And we'll talk about, on November 16th, our path to being a better than 50% free cash flow conversion business. That comes not only from improving working capital, which we have really good opportunities to do, particularly with the global procurement function, and also looking more creatively how we're financing and implementing robotics and automation. I do want to touch on that a little bit. I know you launched the GXO way, which is your kind of standardized productivity, if I'm describing it right, the standardized productivity playbook. Given labor is two-thirds of your costs, obviously we understand the pass-through nature and what that means, but it's still a pretty large labor-intensive aspect of the business. What site-level tools or what productivity initiatives can you deploy specifically on the labor side? That is such a great question, and so thematic to what we're doing. As I did the warehouse tours, foundational to great warehouse execution in modern day times is labor management and labor management systems that support that execution. It is measuring productivity at an individual activity level, coaching performance, and removing quiet time in the warehouse where people are standing and may not have work to do because it hasn't arrived at their station, for example. As I toured, I found 58 different labor management systems at GXO, but I probably only found 60 sites where those have been deployed. So we have a very large initiative to deploy. we're moving to two labor management systems for the enterprise as part of one GXO that way our leaders and sites can move from site to site they'll be using largely the same tools we can implement AI and get scale benefit around improvement in labor management and those systems rather than having to deploy improvement across 58 different systems and typically from labor management system implementation at a site level, we expect a 5% to 15% improvement in productivity. We will share some of that benefit with our customers. Some of that benefits will accrue to GXO. We'll share more details in the glide path in terms of specific numbers of driving boards there, but you can imagine with two-thirds of our cost being labor, that has to be a substantial part of it. And then maybe just one follow-up, and you certainly touched on the different contract mixes and especially how that um is different even from a geographic standpoint so as we think about the open book versus closed book mix how should we expect that to maybe change over time and then help us think about how you you know with the focus on margins but at the same time you know return on invested capital is a key aspect as well too so especially um how do you manage the mix and contracts sure uh i'm not so caught up in fixed variable versus cost plus what what I am a passionate about is to make sure that our cost plus contracts where our customers are reimbursing us for the cost we spend plus a margin include a shared savings component and that is very typical in open book contracts I think that has not been as difficult enough because it should have been in the past for GXS and that was something that we're very focused on we're happy to be transparent with costs with customers or we're happen to be fixed variable and to provide the customer with a certainty in cost, which is the big difference. In both cases, we wanna have the mechanism where we're investing in robotics automation, AI, and those things that enhance productivity, and we're sharing in the benefit of that investment so that we're getting the right return on capital. And we wanna position ourselves in a way, particularly for the cost plus contracts, where we can be taking those actions and not burdening the customer with a mutual decision that we are gonna make investment in the business and the automation or robotics, which many times is a constraint and in the industry has been a typical expectation is if you invest a million dollars in the customer's operation, you want the customer to guarantee that you get the million dollars back. I know what we can deliver through the robotics and automation solutions that we have. I'd rather go ahead and make the investment and share the value that we create for customers, renew customers, because I'm providing a great service at a cost. So we have specific initiatives driving towards that. Maybe sticking on the topic of automation, I think you've conducted, I think, a few dozen tests with some humanoid? 45. Okay. Soon to be 46 humanoid tests. What are some of the early learnings here? um hand dexterity matters um i think i was quoted recently in an article where i said we don't need olympic level humanoids so we all saw the you know the olympics in china with the humanoids and so forth we don'T need olympid level humanoins in the warehouse we need great hand dexterity uh that that has has been uh the biggest challenge and i think the industry has surpassed this year solving that and hand dexterity used to be this and now hand dexerity is this and it's amazing how much more you can do when you can move your fingers like this instead of just like that um the second piece is uh the processing speed or the speed of the humanoids in performing individual tasks so i have videos on my phone i'm happy to share with people afterwards it's painful to watch a humanoid pick a lipstick because it's so slow it's speeding up but we've got to get the product we've gotta get the productivity of those motions up to what a human can perform it to really get to the roi that we need on roi a humanoid industrial i think right now is about seventy thousand dollars i think in two years we'll be down sub 40 operating costs today is fifteen dollars an hour i think in two two years we'll be down to sub 10. we don't know the appreciation curve on a humanoid but again if we do two years three years you can figure fully loaded operating cost of 15 16 an hour compared to fully loaded on an associate is twice that so a lot of tasks in the warehouse environment that we see application for humanoid which is why we are and have been so aggressive in piloting and working with multiple partners in the technology field. Any other areas within the, because that's all very exciting, but any other areas from an automation standpoint we should think about? Or also, you know, GXOIQ, which is an area that I think you've adopted for just leveraging AI capabilities too. So maybe just talk about broad AI, machine learning, other automation, and your quest for obviously driving, you Know, efficiencies and productivity. Sure. There's so much innovation going on in just the robotics and automation space, the great work that organizations like AutoStore, Locus, and others are doing to advance the technologies there. There is ROI on those technologies today, and innovation continues to come. So we continue to fill our innovation funnel with those new technologies, really testing efficacy and looking for opportunities to deploy at scale. We're super excited about GXOIQ, which is our middleware solution for the deployment of AI in our operations. We'll have about 60 of our warehouses integrated to GXIQ this year on a path to get all 1,200 integrated over the next couple of years. What that allows us to do is to embed both our proprietary developed AI tools as well is off-the-shelf AI tools in a single system connected to our single data lake, which is very, very important, and for each of our operations to then leverage on a menu basis the AI tools they want to use for their individual operations. So that allows us to execute globally and execute at scale globally, but customize our solutions locally for the things that individual operations need. And so we're very excited as that's rolling out. I think AI is going to make a big difference in our business. All right. Well, last topic, but certainly not the least. There's always a lot of conversation, it seems like, about Amazon supply chain solutions. Unfortunately, it does seem like whenever they put out any kind of press release, your stock tends to move on the announcement. Dramatically. Drametically. Somehow. Somehow. So, for those in the room here today, what would be, and there's more to dig in here, but what's your one or two line of response for, you know, if we see this Amazon supply chain solution announcement, revert back to this thought on GXO? Amazon's not a competitor to GXL. I, it was a real treat first year as a public company CEO to have the news come out May 4th and the stock dropped 19% on what I labeled as fake news. and we have a lot of that these days but Amazon is very clear in their strategy in terms of how they're going to market. They want to market capacity they have in their warehouses, in their planes, and in their trucks for last mile delivery to help absorb fixed costs where I think they've overbuilt in some cases. We don't compete with Amazon on a fulfillment basis. The customer looking for a standardized Amazon solution is not the customer calling us looking for our GXO direct e-commerce solution, for example. So we have never, that I'm aware of, lost a piece of new business to Amazon. We've never lost a piece of existing business to amazon. We don't see amazon as a competitor in our $2.7 billion pipeline. We have a great relationship with amazon. I think they're a fantastic company. I do think for those of my competitors that compete in the parcel space and in last mile delivery, I think Amazon is a real threat, and I think they will drive price reduction in those particular services. But for us in contract logistics, we are client-aligned solutions, so we develop our solutions that are very specific for what our customers need, and we're not about the standardized cookie-cutter solutions, so you simply don't see them swimming in our product. and then maybe also if you just want to touch on you know as being an independent partner well that also can mean in terms of customers meaning you don't also have a potential conflict of interest sure um i i think customers have been you know even even when you look at maybe cpg manufacturers or others who are looking to leverage the amazon website and their fulfillment capabilities and so forth for the e-commerce offerings um i think there is something to be said for protection of customers data which we're very good at we don't share data across customers we have no desire to become one of our customers and to compete with them in their own space and so we provide that independence which an objectivity which I think is really important especially when you're providing client aligned solutions our client aligned solutions have to be about helping our customers achieve their business objectives not just shipping a box so customers have many different business objectives depending on where they are in their business cycle. Some of it is achieving the lowest cost. Some of it is achievement of best service. Some of it you have to achieve both when you're shipping life-saving parts, for example, for MRI machines. Our solutions are client-aligned to deliver at the right service, at the right cost, and that's why our customers are calling us every day. All right. Well, we'll leave it at that. Thank you both for your time. Thank you. Appreciate it. Appreciate it, Heather.